Will Straw tries this difficult economics stuff

And fails: what did you expect?

“There are businesses and households all round the country who borrow either to invest or because they are borrowing for a mortgage. What’s important, and anyone who’s got a mortgage will tell you this, is not the stock of the debt it’s your ability to pay it back.

“And the debt interest payments that Britain has are lower than in the entire period when Margaret Thatcher was in power.”

Fails because he\’s noting the wrong point.

Page 15 here.

What was nominal base rate in the Thatcher years? Eyeballing it, anywhere between 8 and 18%.

What is nominal base rate today? Why, I do believe that it\’s somewhere around 0.5%.

Now children, do you think you\’ll be paying less in interest when interest rates are one sixteenth of what they used to be? One 36 th? You know, even if the debt itself, the stock, has risen, do you think that the flow, what you\’ve got to pay out each month might fall?

Yes, you would wouldn\’t you.

And what will happen when interest rates rise from their currently deliberately reduced levels? You know, after we get back to an interest rate consistent with long run economic conditions? You know, a real interest rate of one or two percent perhaps? Which with inflation at 2-5% (depending upon how you measure it) means nominal base rates of say 4-7%?

Do we think that on our newly wonderfully large stock of debt that our flow of interest payments is going to remain below historical levels?

No children, I don\’t think we do.

And remember kiddies, Will Straw worked in the Treasury under El Gordo and he\’s going to be a Labour MP one day. Weren\’t we and won\’t we be lucky little people to have such an economic genius lording it over us?

Uncle Timmy just wants to remind you that lamp posts and hempen are too good for the lot of \’em.

3 thoughts on “Will Straw tries this difficult economics stuff”

  1. this thinking is all too common on the Left – Sunny Hundal makes the same basic error just about everytime he writes about the economy. And Dunc’s only excuse for not making this error is that he rather confidently assumes that interest rates will stay low forever.

  2. You’re confusing the base rate and the rate on government gilts. This is a common mistake, but I’m sure you used to know the difference.

    Tim adds: No, not confusing them. A quick google didn’t give me gilts rates for the 80s, but did give me base. So I used nominal base throughout, precisely so as to be comparing like with like.

    Of course I’m aware that govt borrows at the gilts rate: but the general point still stands, no, that if interest rates (whether gilts or base or any other in fact) were at 80s levels then Will’s confident assertion that the interest bill is nothing to worry about wuold be the shite that I’ve pointed it out to be, wouldn’t it?

  3. Uncle Timmy just wants to remind you that lamp posts and hempen are too good for the lot of ‘em.

    However in reasonable expectation that there will be a serious shortage of brass nine pounders (what with the defence cuts and all that) Uncle RM will be holding some exclasses in noose tying and the relative advantages of the long and short drop methods. The course will also include fun filled field trips full of practical lessons such as lamp post selection.

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